I’m Professor and Chair of the Department of Economics at LIU Post in New York. I’ve published several articles in professional journals and magazines, including Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. I’ve have also published several books, including Collective Entrepreneurship, The Ten Golden Rules, WOM and Buzz Marketing, Business Strategy in a Semiglobal Economy, China’s Challenge: Imitation or Innovation in International Business, and New Emerging Japanese Economy: Opportunity and Strategy for World Business. I’ve traveled extensively throughout the world giving lectures and seminars for private and government organizations, including Beijing Academy of Social Science, Nagoya University, Tokyo Science University, Keimung University, University of Adelaide, Saint Gallen University, Duisburg University, University of Edinburgh, and Athens University of Economics and Business. Interests: Global markets, business, investment strategy, personal success.

Dunkin' Brands, Panera Bread, And Starbucks: Three Winning Business Models

Dunkin’ Brands, Krispy Kreme (NYSE:KKD), McDonald’s (NYSE:MCD), Panera Bread and StarbucksStarbucks are in a similar line of business. But there is a little thing that makes the difference across the five franchise chains: the structure of the core value proposition—the product or service that defines the image the consumer has about each franchise.

Dunkin’ Brands and Krispy Crème’s value propositions, for instance, includes coffee and donuts, with one difference: Dunkin’ Brands sells coffee and donuts, while Krispy Kreme sells donuts and coffee.

To the ordinary everyday person, this clarification sounds like a word-game. But to a business strategist, it makes a great deal of difference. Dunkin’ Brands focuses on coffee–as shown in the company’s logo — while Krispy Kreme focuses on donuts. This means that Dunkin’ Brands uses coffee to bring customers into its stores, and eventually ends up selling them both coffee and donuts. Krispy Kreme, on the other hand, uses donuts (mostly sold by the dozen) to bring customers into its stores, and eventually sells them both items — though both companies have modified their business model lately.

Simply put: Consumers associate coffee with Dunkin’ Brands, and donuts with Krispy Kreme. When consumers think of getting coffee on the way to work in the morning, they think of Dunkin’ Brands rather than Krispy Kreme.

This makes it more likely that they will stop in Dunkin’ Brands place rather than a Krispy Crème place; and end up getting both coffee and donuts.

Krispy Crème’s association with donuts is hurting the company in another way. Health conscious consumers may steer away from Krispy Crème, as they do not want to buy donuts. But they will stop at a Dunkin’ Brands to get a cup of coffee. Some may end up getting a donut, as it is hard to resist the temptation in front of their eyes. Especially if a cup of coffee is bundled together with a donut in a “breakfast special.”

Now, let’s turn to McDonald’s and Panera Bread value propositions. McDonald’s sells hamburgers, salads, and coffee, and all sorts of other things. Panera Bread sells fresh bread sandwiches, salads, and all sort of other things. Once, again, the order matters. McDonald’s is perceived as a hamburger restaurant, while Panera Bread is perceived as a sandwich and salad restaurant. That makes a big difference in today’s world, where consumers are very cautious about calorie and cholesterol count — as evidenced by the superior performance of Panera’s stock, vis-à-vis McDonald’s stock in teh last three years.

Simply put, a product that used to be an asset in the fast pace and convenient world of the 1960s is turning into a liability in the health conscious world of the 200os.

McDonald’s needs to do much more than adding salad bars to its stores to change its image.

What about Starbucks? Its core value proposition begins with the “third place,” an “affordable luxury” where people can share and enjoy a cup of coffee with friends and colleagues, away from work and home, as discussed in previous pieces. That certainly differentiates the company from all other four franchises, though Panera Bread has been trying to add this dimension to its new stores.

Bottom line: One small change in the core value proposition can make a big difference in franchising, especially when this change tips consumer choice. That’s where the focus of the franchise strategy should be.

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